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Another debt ceiling debacle could sink the economy

Last year's Congressional debt standoff hurt consumer confidence more than the collapse of Lehman Brothers, Betsey Johnson and Justin Wolfers write. This time could be worse.  Read more at Counterparties  

SEC looks into private equity industry practices: WSJ

Sat Feb 11, 2012 2:27pm EST

(Reuters) - The Securities and Exchange Commission has launched an inquiry into how the private equity industry values its investments, how those investments are marketed, and other practices, the Wall Street Journal reported on Saturday.

Federal regulators sent letters to numerous private equity firms in December in an "informal inquiry" into the $1.2 trillion industry, which historically has not been a major focus of scrutiny by the SEC, the newspaper said.

It was unclear which firms received the SEC letter which "requested information related to 12 broad areas, including fund raising and fund formation," it said.

One focus of the SEC inquiry will be how private equity firms value investments and discrepancies in valuations from firm to firm, it said, citing the letter and people familiar with the matter.

The SEC has increased resources policing private equity as the industry has grown since the 2008-2009 financial crisis. Regulators have several cases involving private equity firms that they may soon bring, the newspaper said.

To date, the private equity industry has steered clear of recent trading scandals and was not at the core of the housing market's collapse.

(Reporting by Karl Plume in Chicago; editing by Mohammad Zargham)
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Comments (2)
puzzled wrote:
How do Private Equity firms value companies? They value them based on the amount of capital they can borrow from the investment banks – cash flow, EBITDA, debt/ebitda – thats all BS – those numbers are made up. All the PE firms want is capital and liquidity. They’ll buy a pig, try to put some lipstick on it and call it a supermodel. They hope to window dress long enough to exit.

Case in point, why have PE returns on investments dropped so much? Borrowing not available like the good ole days. As long as spreads are favorable they will pay more because they think they can refinance that debt later – not sure what the SEC is looking for here, but if they are looking for collusion and Tying between the PE funds and banks, they can find hundreds of examples here.

Feb 11, 2012 8:35pm EST  --  Report as abuse
breezinthru wrote:
I doubt if the private equity firms are afraid of the SEC. If there are any repurcussions at all for illegal actions, it will amount to a modest fine and a scolding. Big deal. They get to keep almost all of their ill-gotten gains.

That’s why this private equity problem keeps getting bigger instead of going away.

Feb 12, 2012 10:19am EST  --  Report as abuse
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